Validating Dynamic General Equilibrium Model Forecasts
The maintained hypotheses embodied in structural general equilibrium models calibrated to data have tended to make economists and policy makers insecure regarding their empirical foundation. Advances in dynamic general equilibrium (DGE) theory and its empirical application have exacerbated this insecurity since the forecasts provide by these models brings questions of validation to the forefront. Here, methods are developed to measure the magnitude of bias in DGE forecasts that are simple to implement. We adopted the concordance correlation measure, and introduced a time function method to assess the bias in DGE forecasts. A time-series confidence interval method is also introduced to formally judge the "good" forecasts from the "bad". A calibrated DGE model is used to illustrate them. The time function method allows for the choosing of a functional form and an upper bound on forecast error. The time-series confidence interval method allows the DGE results to be evaluated by the standard of the rival time series models. If the DGE results are as good as time-series forecasts, the DGE model is a superior framework because of its advantage in providing not only "good" forecasts, but also insights into the economic structure generating the results. To illustrate these methods, we calibrate to Taiwanese data for the year 1988 a multi-sector Ramsey-based DGE model. The model is shown to forecast various dimension of the economy with surprising good, but varying accuracy. The proposed validation measures show effectiveness in distinguishing among diverse model parameter values and detecting model improvements. The measures are also statistically meaningful and require no arbitrary probabilistic assumptions on the distribution of either the results or the data.
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Will Martin & Kym Anderson, 2006.
"Agricultural Trade Reform and the Doha Development Agenda,"
World Bank Publications,
The World Bank, number 6889, September.
- Kym Anderson & Will Martin, 2005. "Agricultural Trade Reform and the Doha Development Agenda," The World Economy, Wiley Blackwell, vol. 28(9), pages 1301-1327, 09.
- Kym Anderson & Will Martin, 2005. "Agricultural Trade Reform and the Doha Development Agenda," Centre for International Economic Studies Working Papers 2005-17, University of Adelaide, Centre for International Economic Studies.
- Anderson, Kym & Martin, Will, 2005. "Agricultural trade reform and the Doha development agenda," Policy Research Working Paper Series 3607, The World Bank.
- Jean-Christophe Bureau & Antoine Bouet, Yvan Decreux, Sébastien Jean, 2005.
"Multilateral agricultural trade liberalization: The contrasting fortunes of developing countries in the Doha Round,"
The Institute for International Integration Studies Discussion Paper Series
- Antoine Bou�t & Jean-Christophe Bureau & Yvan Decreux & Sébastien Jean, 2005. "Multilateral Agricultural Trade Liberalisation: The Contrasting Fortunes of Developing Countries in the Doha Round," The World Economy, Wiley Blackwell, vol. 28(9), pages 1329-1354, 09.
- Antoine Bouët & Jean-Christophe Bureau & Yvan Decreux & Sébastien Jean, 2004. "Multilateral Agricultural Trade Liberalization: The Contrasting Fortunes of Developing Countries in the Doha Round," Working Papers 2004-18, CEPII research center.
- repec:bil:bilpap:969 is not listed on IDEAS
- Timothy J. Kehoe, 2003.
"An evaluation of the performance of applied general equilibrium models of the impact of NAFTA,"
320, Federal Reserve Bank of Minneapolis.
- Timothy J. Kehoe, 2003. "An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA," Levine's Working Paper Archive 506439000000000525, David K. Levine.
- Kehoe, Timothy J & Polo, Clemente & Sancho, Ferran, 1995.
"An Evaluation of the Performance of an Applied General Equilibrium Model of the Spanish Economy,"
Springer, vol. 6(1), pages 115-41, June.
- Timothy J. Kehoe & Clemente Polo & Ferran Sancho, 1994. "An evaluation of the performance of an applied general equilibrium model of the Spanish economy," Working Papers 480, Federal Reserve Bank of Minneapolis.
- Echevarria, Cristina, 1997. "Changes in Sectoral Composition Associated with Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 431-52, May.
- Diao, Xinshen & Somwaru, Agapi & Roe, Terry L., 2001. "A Global Analysis Of Agricultural Trade Reform In Wto Member Countries," Bulletins 12984, University of Minnesota, Economic Development Center.
- Mark W. Watson, 1991.
"Measures of fit for calibrated models,"
Working Paper Series, Macroeconomic Issues
91-9, Federal Reserve Bank of Chicago.
- Elbasha, Elamin H. & Roe, Terry L., 1996.
"On Endogenous Growth: The Implications of Environmental Externalities,"
Journal of Environmental Economics and Management,
Elsevier, vol. 31(2), pages 240-268, September.
- Elbasha, Elamin H. & Roe, Terry L., 1995. "On Endogenous Growth: The Implications of Environmental Externalities," Bulletins 7493, University of Minnesota, Economic Development Center.
- Roe, Terry & Somwaru, Agapi & Diao, Xinshen, 2002. "Do direct payments have intertemporal effects on U.S. agriculture?," TMD discussion papers 104, International Food Policy Research Institute (IFPRI).
- Kehoe, Timothy J & Prescott, Edward C, 1995. "Introduction to the Symposium: The Discipline of Applied General Equilibrium," Economic Theory, Springer, vol. 6(1), pages 1-11, June.
- Lars Peter Hansen & James J. Heckman, 1996. "The Empirical Foundations of Calibration," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 87-104, Winter.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea06:21325. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.